Gold Mines of Sardinia Limited

A.C.N. 009 234 851

Dec 2000

31 January 2001

Manager - Companies
The Australian Stock Exchange Limited
2 The Esplanade

Dear Sir/Madam


The Directors submit their quarterly report for the period ended 31 December 2000.

Yours faithfully










New gold discovery at Monte Ollasteddu in the Eastern Paleozoics. Large soil anomaly with up to 0.99g/t Au in soils and 57g/t Au in rock chips.
New epithermal veins, sinters and silicified limestones discovered in the Cuglieri region, with highly anomalous pathfinder elements, in silver, mercury and arsenic.
New enargite and vuggy silica mineralisation intersected in diamond drilling at Furtei.





Gold production of 6442oz, 12 per cent above budget, at 3.8g/t average ore grade treated in the CIL plant.
Average realised gold price US$278/oz, compared with average spot price of US$272, and cash operating cost of US$172/oz.
Sulphide processing plant construction to be complete by end first quarter 2001.


Further planning under way to assess future programs.




Environmental Impact Study scoping document compiled.
Legal advice favourable in appeal lodged against a regulatory veto on trial mining approvals.



Mr Jon Pither, Chairman of the Aim Trust, and formerly a director of Selection Trust plc and the London Metal Exchange, and a council member of the Confederation of British Industry and president of the Aluminium Federation, appointed to the board of Gold Mines of Sardinia Limited as a non-executive director and chairman.


Mr Peter Hambro and Mr Rudolf Agnew resigned as directors of GMS. Mr Vittorio Gori resigned as a director of GMS but continued as a non-executive director of the company’s Italian operating subsidiary.



GMS’ 10% holding in Navan Mining doubled in market value on reports of a major high-grade gold discovery in Bulgaria.
Homestake Mining, 7.3% shareholder in GMS and potential JV partner, began exploration program in Sardinia.

* * * * *




(Sardinia Gold Mining SpA)


The Furtei open pits generally continue to produce more gold than indicated in modelled estimates. Gold production for the December quarter 2000 was 12 per cent above budget at 6442 ounces – 6233oz from the carbon-in-leach (CIL) circuit and 209oz from the dump leach operation.

The average ore grade treated in the CIL plant was 3.8 grams per tonne (g/t).

Oxide ore sources continue to produce gold, nearly 12 months beyond feasibility forecasts, as a result of the exploration successes achieved at Furtei.

During the quarter, 143,770 tonnes of material were mined (Table 1), of which 41,280t was CIL ore delivered to the plant at an average grade of 4.32g/t and 330t was placed on the dump leach pad at an average grade of 0.92g/t.

Waste movement from the pits by a local company contracted to supply fill-material for a major road-building project on the island continued successfully during the quarter. This arrangement continues to reduce the overall material movement cost at Furtei.



December Qtr

September Qtr




Material moved




Ore moved




Strip Ratio



Processing – CIL

Dry tonnes milled




Calculated gold grade




Gold recovery




Gold produced




Processing - dump leach

Gold produced




Total Gold Produced




Total Mine Cash Operating Costs






The average realised gold price for the three months to 31 December 2000 was US$278 an ounce (September quarter, US$280), compared with the average spot price of $272 for the same period.

The cash operating cost of US$172/oz gave a margin of US$106/oz for the quarter. (September quarter, US$134 and US$146 respectively).

Sales of gold into hedging instruments amounted to 4956oz at an average US$280 an ounce (September quarter 4457oz at an average US$282) and sales into the spot market 1796oz at an average US$272/oz (September quarter 1257oz at an average US$277/oz).

All silver sales were into the prevailing spot price on the day of delivery.





3 months to

31 December 2000

3 months to

30 September 2000

Bullion Sales



Gold Equivalent Factor

Gold Equivalent















Average Realised Prices












Total Sales Revenue














Committed - Spot Deferred Contract - 372.49oz at an average price of US$280/oz.





(Per the Gold Institute Production Cost Standard)


Sulphide project

Mining of waste material to expose the sulphide orebodies which began late in the March quarter continued through the December quarter.

A total of 61,080t of waste was moved, with some oxide material also produced (9720t at 1.27g/t to CIL, and 720 tonnes at 0.74g/t to dump leach). The local road contractor is also being used in the oxide project, thus reducing the overall cost to SGM.

The sulphide processing plant should be completed in by the end of the first quarter 2001.

All major earthworks on the flotation plant, the new process water dam and the feed and discharge lines from the plant have been completed. The concrete foundations for the main building, mill and thickener areas are ongoing.

The thickener and the seven flotation cells are ready for installation. The process pumps are only awaiting the rubber lining before they are finished. Modifications to the circuit will result in the addition of a storage tank for the treated material.

Bacterial oxidation of pyrite in on-site trials

The bio-oxidation heap leach trials were stopped after about four months’ operation. The two heaps (sized material between 18 and 40 mm, and run of mine) were dismantled in five horizontal cuts each and samples and photographs taken at each level.

Cyanidation, sizing and moisture content determination of the samples is complete. Samples have also been sent for chemical analysis.

Further planning is under way to assess future programs.


The Environmental Impact Study (EIS) scoping document was compiled during the quarter. This document will establish the EIS terms of reference for the full-scale development of the Osilo project when it has been reviewed and commented upon by the appropriate regulators.

The individual scientific studies that comprise the EIS will be undertaken by a panel of Sardinian and international experts. The detailed scoping of theses studies is in progress.

The appeal to overturn a regulatory veto on the previously obtained trial mining approvals has been lodged with the responsible authority. The hearing of the appeal was postponed until next quarter, to enable a final rather than interim decision to be handed down. The veto relates to the administrative process the regulator followed when granting the original approval and does not in any way negatively comment on the merit of the project. SGM has received legal advice that a very strong case exists to have the veto set aside.

Once the veto has been set aside, resource confirmation drilling will begin at the Bunnari site and building permits gained for trial mining. Deep drilling at Bunnari is expected to confirm the previously intersected high-grade zone in this vein, while trial mining would confirm mining, geologic, environmental and processing parameters sufficiently to complete detailed planning of the full scale mine.



Diamond and RC drilling continued in the Furtei mine corridor to test new targets for both the copper-gold and pyrite-gold styles of mineralisation.

Three deep diamond drill holes were drilled to test the western contact zone of the diatreme breccia and the volcanic pile. Strong argillic alteration, pyrite mineralisation and brecciation marked the contact zone but with only minor intervals of gold.

At Su Masoni, a 17m zone of 10-15% pyrite and 1% enargite was intersected in vuggy silica alteration from 113m, and a further 6m of pyrite from 209m (assay results pending). This extends the Su Masoni mineralisation 40m to the west and confirms a flat lying higher grade shoot which is controlled by the structure intersecting the flat lying contact between overlying volcanics and pyroclastics.

A program of three deep diamond holes spaced 250m apart is in progress to test the intersection of the Cima-Est structural corridor with the Sa Perrima-Coronas Arrubias structural corridor. The first hole is under way and has intersected an 18m interval of vuggy silica enargite and pyrite zone grading 1.88g/t gold from 163m. The target zone is at 350-400m down hole.


The diamond drilling program designed to confirm the high grade shoots on the Bunnari vein at Osilo was delayed by a postponement in the court hearing to early in 2001. An initial program of high grades previously drilled 100m apart in holes OBD1 (2.9m @ 15.18g/t Au), OBD9 (3.2m @ 18.98g/t Au) and OBD8 (2.2m @ 18.42g/t Au).


Monte Ollasteddu

SGM has discovered a new and significant area of gold mineralisation in the Monte Ollasteddu region in the Eastern Paleozoics (Fig. 1). The gold is associated with stock work quartz veining, silicification and arsenopyrite mineralisation related to the Carboniferous-age Hercynian deformation. The mineralisation is hosted in brittley deformed meta-rhyolites and at the sheared contact with meta-siltstones.

The Monte Ollasteddu area was first highlighted by very high stream sediment results of up to 330 parts per billion gold. Subsequent ridge and spur soil sampling along 50m intervals on lines spaced 500 to 700m apart now defines an east-west trending soil anomaly over 1.5km long and up to 600m wide (using a 50ppb contour). Best soil results include 996, 554, 334 and 330 ppb Au. The soil anomaly is open to the east and west.

Of the 76 rock chip grab and channel samples taken in this zone, 28 (or 37%) have returned values greater than 1g/t Au. Best results include 57.6, 40.3, 19.28, 12.69, 12.39, 6.31 and 5.61g/t Au. The average of the 28 rock chips is 7.50g/t Au (Fig. 2).

Topographically, the area is dominated by an elevated plateau and deeply incised valleys. The plateau area is covered by soil and thick brush. The steep slopes largely comprise scree and alluvium. Rock outcrops comprise less then 20% of the area.

Reconnaissance mapping and rock chip sampling 1km to the north-west and 2km to the east of the soil anomaly have returned best results of 4.74, 4.34, 4.48 and 3.23g/t Au. This extends the mineralisation to 4.5km along strike and it more than likely continues further to the east under a thin layer (less than 100m thickness) of Eocene sandstone for another 4km, and crops out at the Baccu Locci group of old workings.

The Baccu Locci area was mined in the past for arsenic, as arsenopyrite mineralisation in quartz veins, and previous rock chip sampling from underground and surface exposures returned up to 12g/t Au.

The Monte Ollasteddu to Baccu Locci zone of gold-arsenopyrite mineralisation totals in excess of 12km and is still open to the east and west. The structure may continue to the Genna Ureu prospect, where grab sampling of quartz veins with arsenopyrite mineralisation has returned up to 16g/t Au, giving the mineralised structure a potential strike length of 35km.

The Monte Ollasteddu discovery represents both a high grade vein-style target and/or a significant lower grade bulk tonnage stockwork vein and disseminated sulphide target.

Regional stream sediment sampling, along with ridge and spur sampling, is under way.

Preliminary results from eight sulphide samples collected at Monte Ollasteddu average 86.53% gold recovery from 24hr active cyanide leach.

Cuglieri Epithermal Field

New epithermal veins and sinters have been discovered near the town of Cuglieri - a new quartz barite vein at Pedra Loabbio and epithermal quartz stockworking in silicified limestone at Ponte Mannu.

These epithermal occurences, along with the previously known sinters at Porto Alabe, Scano Montiferro and Monte Olia, appear to be centred on two large magnetic highs located near Cuglieri and falling within a 20km diameter ring structure (Fig.3). This represents a large epithermal field similar in size and potential to the Osilo field in north Sardinia.

Anomalous pathfinder elements accompany each of the above. The Pedra Loabbio quartz barite vein is high in silver: the average grade of 11 rock chip samples is 8.57g/t Ag with a maximum of 35g/t Ag. The vein crops out over a 450m strike length and averages 1m width. It is interpreted to be high in the epithermal zone and this is supported by the occurrence of floats of epithermal sinter near the vein. The sinter is anomalous in arsenic (880ppm) and barium (6200ppm).

A 200m square window through the overlying Pliocene basalt at Ponte Mannu has exposed hydrothermally altered Tertiary-aged limestone. The limestone is silicified, and a dense stockwork of quartz veinlets, comprising up to 20% of the rock, is present. The quartz is a dark grey chalcedony and is characteristic of silica in the higher parts of the epithermal system. Anomalous pathfinder geochemistry includes 6.4ppm mercury, 980ppm arsenic and 5600ppm barium. The overlying basalt is only 30m thick and the Ponte Mannu area lies on the east-south east trending structure which extends from Porto Alabe to Scano Montiferro.

Reconnaissance mapping and sampling are continuing in the Cuglieri region. A research permit has been applied for over the Pedra Loabbio vein and RC drilling is planned to test the vein and sinter field at Scano Montiferro.


Nine RC holes for 964m were drilled over the IP chargeability anomaly at Siliqua. Drilling intersected andesitic volcanics with some zones of strong argillic alteration. Assay results were disappointing: the best interval was 1m @ 1.21g/t Au.

At Romana, detailed mapping has identified new silicified fault structures with pyrite mineralisation and hydrothermal brecciation. The Romana area is interpreted to be very high in the epithermal system and this is reflected by the low gold values at surface. Mapping is focussed on identifying possible feeder structures for later drill testing.

Homestake Mining Company

Homestake has begun its involvement with exploration and deployed an experienced epithermal geologist to Sardinia in mid-November. Mapping and prospect evaluation began in the North West Volcanics and also in the Monte Ollasteddu region.


Board changes

Mr Jon Pither has joined the board of Gold Mines of Sardinia Limited as a non-executive director and chairman. Mr Pither, a graduate of Cambridge University is Chairman of the Aim Trust. He is a former managing director of Amari plc, and a former director of Selection Trust plc, and the London Metal Exchange. A council member of the Confederation of British Industry and president of the Aluminium Federation, he currently chairs a number of quoted and private companies with particular interests in metals and engineering.

Mr Peter Hambro and Mr Rudolf Agnew have both resigned as directors of the company. Their decision to resign was precipitated by a difference of opinion with major shareholders and other board members regarding the future direction of the company.

Mr Vittorio Gori has also resigned as a director of the company. Mr Gori, who resides in Italy, will remain as a non-executive director of the company’s Italian operating subsidiary, Sardinia Gold Mining SpA. It is expected that Mr Gori will be actively involved in the company’s gold mining and exploration activities in Sardinia.

Domicile and financial position

The migration of the company’s domicile from Australia to Britain continues, despite some procedural delays.

The company has in excess of A$22 million in cash and negotiable securities, and has applied to receive a further A$20 million in the form of European Commission and other government funds.

Navan holding

Navan Mining, in which GMS has a 10% holding, has announced the potential for a major high-grade gold discovery in the south-east of Bulgaria. The gold is hosted in low sulphidation epithermal veins and is open-pittable.

Navan Mining shares, re-listed on the London Stock Exchange last July, have doubled in market value since the GMS acquisition in the June quarter.

GMS acquired the stake as part of its strategic alliance with US-based Homestake Mining Company, one of the world's biggest gold producers. Homestake has a 7.3 per cent holding in GMS.

* * * * *

Mr Jeff Rayner, Chief Geologist for Sardinia Gold Mining SpA, has been responsible for the preparation of the geological sections of this report. Mr Rayner is a corporate member of the AusIMM and has more than five years’ experience in the estimation, assessment and evaluation of mineral resources and ore reserves which is relevant to the style of mineralisation under consideration.

Figure 1 EasternPalaeozoic

Figure 2 MonteOllasteddu

Figure 3 N-W Volcanics





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